The Office of the Comptroller of the Currency (the “OCC”) and the Federal Deposit Insurance Corporation (the “FDIC”) have recently introduced modified application processes for bank charters and deposit insurance. The purpose of these modified processes is to facilitate potential investors’ ability to bid for and purchase the assets of troubled insured institutions in a shortened time frame so as to ensure that these institutions are acquired in a manner that results in minimal disruption to the financial system. In addition, as a result of these modifications, the pool of capital available to purchase troubled depository institutions should be greatly expanded to include that of private equity and other specialty finance firms. These processes, however, do not represent a relaxation of any regulations or requirements; rather, as discussed below, they streamline the acquisition process.  

OCC Grants First Shelf Charter

On November 21, 2008, the OCC awarded its first shelf charter to Ford Group Holdings, an acquisition vehicle backed by the private equity firm Flexpoint Partners, LLC, and Hilltop Holdings Inc.  

Under the shelf charter process, the OCC grants preliminary approval to investors for a national bank charter based on an initial review of its proposed management team, sources and amount of capital, and a streamlined business plan. This preliminary approval remains subject to certain conditions, and requires that the investor update the OCC (1) immediately of any material changes to any of its preliminary application information; and (2) periodically as to the status of the preliminary information. By receiving preliminary approval, the investor is cleared to make bids for institutions included on the FDIC’s list of troubled institutions. The FDIC will contact the investor to determine whether it has an interest in bidding on a specific troubled institution. The charter remains inactive, or “on the shelf” until the investor has decided to bid on a target troubled institution that it is able to acquire.  

Once the bank indicates interest in a potential acquisition target, it must promptly notify the OCC in writing of the potential acquisition. This notice must include an acquisition business plan that sets out more detailed information regarding initial capitalization, operations, and business of the acquired institution. The acquisition business plan must place particular emphasis on the initial 60-day period subsequent to acquisition of the institution. After filing this notice and receiving the non-objection of the OCC to continue the acquisition, the investor, through the bank, may proceed to submit a bid to the FDIC for the target institution.  

After a bid is submitted to the FDIC for a specific troubled institution, the investor must provide the OCC with a copy of its bid, together with the applicable agreements, applications, and organizational documents required by the OCC. If the FDIC accepts the bid and the OCC grants final approval and awards a charter to the investor, then the bank must, within one business day of signing an acquisition agreement for the failed institution, enter into an operating agreement with the OCC. If the FDIC does not accept the investor’s bid on a specific institution for any reason, the shelf charter remains active for up to 18 months — or longer, if extended by the OCC — and can be used to bid for other troubled institutions.

FDIC Expands Bidder List for Troubled Institutions

On November 26, 2008, the FDIC announced that it had modified its bidder qualification process to allow entities that do not currently have a bank charter to bid to acquire financially troubled institutions after completing a modified deposit insurance application process. Under the modified process, non-bank bidders will apply for and receive conditional approval for deposit insurance based on the FDIC’s review of abbreviated information submissions and applications. The FDIC’s application will solicit information from potential bidders similar to that requested by the OCC, such as a proposed management team, sources and amounts of capital, and a business plan that complies with the Community Reinvestment Act. In addition, to qualify to bid on a failing institution bidders must meet specified bid criteria and must have previously received conditional approval for a bank charter.  

Conclusion  

The OCC’s and FDIC’s new modified application processes for investors desiring to obtain bank charters and deposit insurance, respectively, should facilitate investors’ ability to bid for and purchase assets of troubled depository institutions. The OCC and FDIC have introduced these new processes on the heels of the Board of Governors of the Federal Reserve System’s announcement that it had eased restrictions on private equity firms’ noncontrolling investments in banks and bank holding companies. In combination, these recent actions should have the desired effect of expanding the pool of investors and capital available to acquire troubled depository institutions. Modified application materials are not yet available on the OCC’s or FDIC’s Websites.